NIRMA is an insurance pool in the State of Nebraska that provides all lines of insurance coverage to the counties in the State of Nebraska. Our insurance policy was written and designed in a way to meet our members' needs; as such, the language in our policy is not standard ISO language. We have a coverage issue we are trying to resolve and are looking for an opinion about the contamination exclusion we have in our policy.
The claim involves damage to a motor grader which is covered under our property coverage. The motor grader is considered mobile equipment and it is insured under Section B: Property damage 1.B.5.) in the provided policy.
One of our members has a county owned motor grader and fuel tank at an insured employee's residence. The policy territory is extended to cover insured's property located anywhere within the state of Nebraska. The fuel tank has a collection barrel besides the fuel tank to collect the leftover fuel from the hose. Over time, water got into the collection barrel and mixed with the leftover fuel. Insured employee ended up putting the leftover fuel, now mixed with water, back into the fuel tank. The employee then put the fuel into the motor grader, which damaged the fuel system in the motor grader.
Our property policy has a contamination exclusion and after round tabling this claim, trying to decide if it's covered or not, we have various opinions.
The contamination exclusion reads as follows:
4. EXCLUSIONS
The following exclusions apply unless specifically stated elsewhere in this Policy.
D. This Policy excludes the following unless directly resulting from other physical damage not excluded by this Policy:
1) Contamination including but not limited to the presence of Pollution or hazardous material;
It is my opinion that the contamination exclusion would apply to this claim. The insuring agreement states we will insure for all risks of direct physical loss or direct physical damage to insured property.
Contamination is not defined under our policy.
- I feel the direct physical loss to the motor grader was the result of the contaminated fuel.
- I do not feel the loss to the motor grader was the result of the negligence of the owner/insured?
- I do not see how an employee negligently putting contaminated fuel into the motor grader accidently as other physical damage or direct physical damage.
- Other opinions I have obtained is the claim is covered, because the appropriate cause of loss is the employee's mistake of putting watered down fuel into the engine. This cause of loss is not excluded; therefore it is covered.
- We don't see the water seepage into the fuel supply as “contamination” or “pollution”. The more proximate cause was the employee failing to notice and pouring bad fuel into the mobile equipment.
Nebraska Subscriber
When a policy term is not defined, courts refer to a standard desk reference as that is what the average insured has access to. Merriam Webster Online defines “contaminate” as to make inferior or impure by admixture; or to make unfit for use by the introduction of unwholesome or undesirable elements. This would be the introduction of water into the fuel, as water in fuel is undesirable.
The employee using the contaminated fuel is accidental unless he knew the fuel was contaminated before putting it into the equipment. However, that is beside the point. Either way, the equipment was damaged by the contaminated fuel in the system. We don't see that the employee pouring the fuel into the equipment counts as other physical damage; it is the cause of the contamination, but contamination is excluded. It is not separate physical damage. Our opinion is that the contamination exclusion would apply to this claim.